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Boomers and the economy's future.

As more baby, boomers become eligible for retirement, what effects will this have on the U.S. economy? Kevin Kliesen, an economist at the Federal Reserve Bank of St. Louis, considers this topic in a recent issue of the Bank's quarterly periodical, The Regional Economist.

Kliesen uses a standard growth accounting framework to estimate how gross domestic product (GDP) growth can be expected to change as the baby-boom generation--born between 1946 and 1964--heads towards retirement. This framework combines three factors: projected population growth, a projection of labor force participation growth, and projected productivity growth. Adding these up fields an estimate of future real GDP growth.

Population projections cited by Kliesen show a slowing of the rate of adult population growth from 1.2 percent per year in the 1990-2006 period to 0.9 percent in the 2007-2017 period and 0.8 percent in the 2018-2028 period. The labor force participation rate dropped slightly from 1990 to 2006; projections suggest a more rapid drop in labor force participation between 2007 and 2017, and an even faster decline between 2018 and 2028. He mentions that the labor force participation rate could decline less than projected, but considers this to be unlikely.

For the last piece of the puzzle, productivity growth, Kliesen assumes that the average rate of growth of about 1.8 percent per year in the 1990-2006 period will continue in the two subsequent periods. Putting it all together, Kliesen finds that "the growth accounting framework projects that real GDP growth will slow from an average of 3 percent per year from 1990-2006 to 2.5 percent per year from 2007-2017 and then to 2.2 percent per year from 2018-2028." He does acknowledge that faster productivity growth could have a mitigating effect, but mentions several reasons why this might not happen.

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Title Annotation:Precis
Publication:Monthly Labor Review
Geographic Code:1USA
Date:Oct 1, 2007
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